Wednesday, January 8, 2020

Buy the cannons, sell the trumpets?

Mid-week market update: The financier Nathan Rothschild was said to have coined the phrase, “Buy on the sound of cannons, sell on the sound of trumpets”. After the New York market closed last night, the news flashed across the wire that Iran had launched missile strikes at Iraqi bases housing American and Coalition military personnel. Equity futures cratered as much as -1.6%, but by the time the dust settled, the market had opened in the green on Wednesday.

Have we had a cannons and trumpets moment?

For some perspective, Ryan Detrick highlighted analysis from Sam Stovall that documented the equity market's reaction to major geopolitical shocks since Pearl Harbor. The initial reaction and drawdown averaged -5%. If we were to exclude the events that led to major US military commitments (Second World War, Korea, Vietnam, Gulf War I, and 9/11), the average drawdown falls to -3.0%, with a median of -1.8%.

For readers who have been writing me about the Apocalyptic nature of the Iran developments, what are you so worried about?

The full post can be found here.

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